1999 Bonus Rates
Legal & General Group PLC
29 February 2000
LEGAL & GENERAL ANNOUNCES 1999 BONUS RATES
Real rates of return on Legal & General's 25 year with-profits policies at 7.5
per cent have hit a record high with the announcement of today's 1999 bonus
declaration, showing the success of investing in with-profits.*
Legal & General's approach to this year's bonus declaration reflects a period
of expected low inflation, when nominal investment returns are likely to be
lower than they have been in recent years. Annual bonus rates have, on the
whole, reduced while terminal bonus rates have, in most cases, increased or
stayed the same. Payouts have generally reduced, although payouts on some
short term pensions policies and on ten year bonds have increased.
For those investors who seek to benefit from investing in real assets, but who
do not wish to experience the full volatility of direct investment into the
stockmarket, Legal & General believes that with-profits policies still remain
an attractive proposition with their underlying wide spread of investment in
equities, property and fixed interest securities.
General Notes :
1. *The real rates of return (ie the actual return minus inflation) relating
to the comment is based on a 25 year with-profits endowment for a male aged 29
paying £50 per month maturing 1 March 2000. The figure assumes that annual
inflation (RPI) for February remains at the same level as January 2000.
2. Maturity values and yields for Legal & General 25 year with-profits
endowment policies taken out by a 29 year old male investing £50 per month and
maturing on 1 March 2000 are:
Endowment Assurance Policy: £96,448 (1999: £100,729). This is an actual return
of 12.8 per cent and a real return over inflation of 7.5 per cent (1999: 7.2%
per cent). This return is 7.1 per cent higher than the 5.7 per cent the same
investment would have obtained from an average higher rate building society
account.
NB: The returns from the average higher rate building society deposit account
are the net rates to 1 March 2000 assuming that interest rates in February
2000 remain at the January 2000 level (Source Micropal).
Low Cost Endowment Policy: £94,205 (1999: £98,552). This is £68,555 greater
than the mortgage of £25,650 it was designed to repay. The policy carries a
higher level of life assurance cover than the endowment assurance policies.
3. Further details:
Examples of payouts to customers with policies maturing in 2000 are available
from Legal & General.
4. 1999 Investment background:
1999 was a good investment year with the capital value of property and UK and
many overseas equities rising during the year. However, at the end of the year
redemption yields on medium to long term Government fixed interest securities
were only a little above the lowest levels seen in the last 40 years. Also
dividend yields have remained low reflecting the continuation of lower
long-term interest rates and lower expected future growth in corporate
earnings. These investment conditions reflect the general belief that we have
entered a period of low inflation in which nominal investment returns will be
lower than they have been for many years.
5. Policy:
The 1999 bonus declaration is in line with Legal & General's principles which
aim to provide competitive and equitable returns for policyholders while
maintaining the strength of the long term fund for future generations of
policyholders. This requires Legal & General to:
- Treat all generations of policyholders and types of policies fairly.
- Take account of the amount of assets generated by each type and generation
of policy allowing for investment returns achieved and expenses incurred.
- Smooth maturity returns to policyholders so that they are shielded from some
of the fluctuations that can be experienced in investment returns and other
factors.
6. Total Cost of Bonuses in 1999: £820m (compared with £785m in 1998).
Regulatory Notes:
1. Past performance is not necessarily a guide to future performance
2. Legal & General Assurance Society Limited is regulated by the Personal
Investment Authority.
3. Returns from with-profits contracts are dependent on bonuses. Future
bonus rates are not guaranteed.
4. Unlike endowments, a building society guarantees the capital and added
interest of its investors.
5. The surplus arose during a period when investment returns were high,
similar returns and therefore such large surpluses may not be available in
future years.
Further Information:
John Morgan
Head of Public Relations
01737 375353
Appendix A
1999 ANNUAL (REVERSIONARY) BONUSES ON LIFE POLICIES
2000 1999
2.25 per cent of sum assured 2.50
4.25 per cent of existing bonus 5.00
Payouts on Maturing Endowment Policies
£50 per month
Maturing Yield Maturing Yield
1/3/00 (Real Return) 1/3/99 (Real Return)
25 Year Payout £96,448 12.8% £100,729 13.1%
(7.5%) (7.2%)
20 Year Payout £43,545 11.5% £46,459 12.1%
(7.4%) (7.5%)
15 Year Payout £20,708 10.4% £21,532 10.8%
(6.8%) (6.9%)
10 Year Payout £9,476 8.8% £9,641 9.2%
(6.2%) (6.0%)
Notes:
The example assumes a male aged 30 next birthday paying a premium of £50 per
month.
*The 'real rate of return' represents the yield obtained less the return
earned if the premiums had grown in line with the RPI (increase in RPI for the
period February to March 2000 assumed to be the same as the annual rate to
January 2000).
Appendix B
1999 UNITISED WITH-PROFITS BONUS DECLARATION
The figures in the table are the running yields for premiums paid in 1999 and
the interim running yields for premiums paid in 1999 and 2000. The equivalent
interim running yields declared last year on premiums paid in 1999 are shown
in brackets.
Single Premium Life Policies (current series)
With Profits Income Bond
1999 Running Yield 7.00% (7.00)%
2000 Interim Running Yield 7.00%
With profits Bond
1999 Running Yield 5.50% (5.50)%
2000 Interim Running Yield 5.50%
Regular Premium(Annual)Life Policies(Current Contract Versions)
Flexible Mortgage Plan(Higher rates apply to some earlier versions of the
Plan)
1999 Running Yield 6.50% (6.50)%
2000 Interim Running Yield 6.00%
Savings Plan (Higher rates apply to some earlier versions of the Plan)
1999 Running Yield 5.85% (5.85)%
2000 Interim Running Yield 5.35%
Personal Pension Plan (accumulation units)
1999 Running Yield 7.30% (7.30)%
2000 Interim Running Yield 6.50%
Notes:
For most of Legal & General's Unitised With Profits policies growth attributed
comes from the addition of a 'contractual addition' and the addition of
bonuses. Both depend upon when the premiums were paid and can vary from year
to year. Where Unitised With Profits policies do not attract a contractual
addition the annual bonuses have been correspondingly higher.
Each year a normal, annual bonus, is declared for the previous year and the
sum of the normal annual bonus and any contractual addition is called the
'Running Yield'. An interim bonus rate, which is not guaranteed and which can
be changed without notice is also declared and applies in respect of the
current year for any claims. 'Interim Running Yield' is the sum of interim
bonus and any contractual addition. NB: the annual bonus rates declared for
2000 may be different from the interim rates.
Terminal bonus may also be paid in the event of claim. Terminal bonus rates
are not guaranteed and can be changed without notice.
The Unitised With Profits terminal bonus rates which range from 1.00% to 6.75%
per annum also depend on the policy type and when the premiums were paid.
Legal & General's current series of With Profits Bond was launched on 16
August 1999. The With Profits Income Bond does not receive a terminal bonus.
Legal & General reserves the right in certain investment conditions to reduce
the amount payable on surrender or switch by the application of a Market Value
Adjustment Factor.
Further example of bonus rates applicable to premiums paid in other years can
be obtained from Legal & General.
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